Navigating Letter of Credit (LC) Fees: An Exporter's Guide
Navigating Letter of Credit (LC) Fees: An Exporter's Guide
Understanding the costs associated with Letters of Credit (LCs) is crucial for profitable international trade. Here's a breakdown of common fees.
Core LC Process Fees
LC Issuance Fee
Charged by the bank for opening or issuing the Letter of Credit. This is a foundational cost.
Typically: Applicant (Importer)
Advising Fee
Charged by the beneficiary's bank (advising bank) for authenticating and notifying the exporter about the LC.
Typically: Beneficiary (Exporter), but can be Applicant.
Confirmation Fee/Commission
Charged if a second bank (confirming bank) adds its guarantee of payment. Calculation varies (e.g., per 3 months, based on expiry + tenor). Issuing bank is liable if uncollectible from beneficiary.
Typically: Beneficiary (Exporter), but can be Applicant. May depend on 'May Add' clause and pre-payment terms.
Activity & Problem-Related Fees
Amendment Fee
Charged for any changes made to the LC terms after it has been issued.
Typically: Party requesting the amendment.
Payment, Acceptance, Deferred Payment, or Negotiation Fees
Covers the bank's obligation to honor the drawing on the due date. Usually separate from confirmation fees.
Varies; often Applicant or as per LC terms.
Discrepancy Fee
Charged by the issuing bank if documents presented by the exporter do not strictly comply with LC terms. Fee should only be deducted for valid discrepancies and details provided.
Typically: Beneficiary (Exporter).
Communication & Other Charges
SWIFT/Telex/Transmission Charges
For sending messages and documents electronically. Charges for remitting proceeds should not be for beneficiary's account unless specified for actions requested by presenter.
Varies; Applicant for standard, Presenter for requested actions.
Courier Charges
For the physical dispatch of documents between banks or parties.
Typically: Party initiating the dispatch or as per LC terms.
Legalization Fee
If documents require legalization and non-legalized ones are accepted with a deduction, LC should state the fee.
Typically: Beneficiary (Exporter) if documents are not compliant.
Special Cases & General Costs
Transferred Credit Charges
All fees, costs, or expenses related to transferring an LC to a second beneficiary.
Typically: First Beneficiary, unless otherwise agreed.
Facility-Related & Legal/Regulatory Fees
May include commitment, management, quarterly fees, plus legal and local regulatory fees incurred by the bank.
Typically: Applicant (Importer).
Visualizing Global Trade Finance
This image illustrates the interconnectedness of global commerce, a key aspect of utilizing Letters of Credit for secure international transactions.
💡 Key Tips for Exporters
Clarify All Fees Upfront
Request a detailed schedule of charges from your bank and understand what the issuing bank might charge.
Know Your Responsibilities
Understand which fees are typically for your account (as beneficiary/exporter) and which are for the applicant.
Factor Fees into Profitability
LC costs can significantly impact your transaction's bottom line. Account for them in your pricing.
Watch for Red Flags
Be cautious of LCs with odd/unusual clauses or unclear charges. Ensure discrepancy fees are only applied for valid reasons.
Negotiate Terms
Where possible, negotiate fee responsibilities with the importer, especially for items like confirmation fees.
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